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Exam 9: Making Capital Investment Decisions

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Question 61

Multiple Choice

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Western Steer purchased some three-year MACRS property three years ago.What is the current book value of this equipment if the original cost was $58,000? The MACRS allowance percentages are as follows,commencing with year 1: 33) 33,44.45,14.81,and 7.41 percent.

A) $0
B) $1,122
C) $4,298
D) $7,863
E) $8,886

F) A) and D)
G) A) and E)

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Question 62

Multiple Choice

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Six years ago,China Exporters paid cash for a new packaging machine that cost $287,000.Three years ago,the firm spent $3,900 on repairs and modifications to the machine.The machine is now fully depreciated and has just sat idly in a back corner of the shop for the past seven months.The estimated value of the machine today is $125,500.The firm is considering using this machine in a new project.If it does so,what value should be assigned to this machine and included in the initial costs of the new project?

A) $0
B) $3,900
C) $125,500
D) $127,400
E) $143,500

F) C) and D)
G) C) and E)

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Question 63

Multiple Choice

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The managers of H.R Construction are considering remodeling plans for an old building the firm currently owns.The building was purchased eight years ago for $689,000.Over the past eight years,the firm rented out the building and used the rent to pay off the mortgage.The building is now owned free and clear and has a current market value of $898,000.The firm is considering remodeling the building into a conference centre and sandwich bar at an estimated cost of $1.7 million.The estimated present value of the future income from this centre is $2.9 million.Which one of the following defines the opportunity cost of the remodeling project?

Ignoring the option to wait:

Which one of the following statements is correct when a firm faces hard rationing?

The Blackwell Group is unable to obtain financing for any new projects under any circumstances.Which term best applies to this situation?

Phil's Dinor purchased some new equipment two years ago for $89,500.Today,it is selling this equipment for $67,000.What is the aftertax cash flow from this sale if the tax rate is 35 percent? The MACRS allowance percentages are as follows,commencing with year 1: 20) 00,32.00,19.20,11.52,11.52,and 5.76 percent.

You are analyzing a project and have developed the following estimates.The depreciation is $14,800 a year and the tax rate is 35 percent.What is the base case operating cash flow?

Forecasting risk is best defined as:

What is the year 2 depreciation on equipment costing $166,000 if it is classified as five-year property for MACRS purposes? The MACRS allowance percentages are as follows,commencing with year 1: 20) 00,32.00,19.20,11.52,11.52,and 5.76 percent.

The Green Tomato purchased a parcel of land six years ago for $299,500.At that time,the firm invested $64,000 grading the site so that it would be usable.Since the firm wasn't ready to use the site itself at that time,it decided to lease the land for $28,000 a year.The Green Tomato is now considering building a hotel on the site as the rental lease is expiring.The current value of the land is $355,000.The firm has no loans or mortgages secured by the property.What value should be included in the initial cost of the hotel project for the use of this land?